Strategic Reactions in Corporate Tax Planning
64 Pages Posted: 23 Dec 2016 Last revised: 19 Apr 2019
Date Written: March 8, 2019
We find that firms’ tax planning exhibits strategic reactions: firms respond to changes in their industry-competitors’ tax planning by changing their own tax planning in the same direction. We document evidence of these strategic reactions in two distinct research settings that entail an exogenous increase and decrease in competitors’ tax planning. We also find evidence that strategic reactions stem from concerns about appearing more tax aggressive than industry competitors, some evidence that they stem from firms learning from the tax planning of their industry competitors, and no consistent evidence that they stem from leader-follower dynamics.
Keywords: Corporate Income Tax; Tax Planning; Industry Competition; Strategic Interaction; Tax Havens; Difference-In-Differences; Partially-Overlapping Groups; Reflection Problem
JEL Classification: H25; H26
Suggested Citation: Suggested Citation